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The Reaction of Interest Rates to Unanticipated Federal Reserve Actions and Statements: Implications for the Money Announcement Controversy

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Author Info
Cook, Timothy
Hahn, Thomas
Abstract

This paper examines the reaction of long- and short-term interest rates to monetary polic y surprises that influenced market expectations of the future behavio r of the Federal Funds rate in the period after October 1979. The aut hors find that the relative reaction of long- and short-term rates t o policy surprises is similar to the relative reaction of these rates to money announcements. Consequently, they conclude that the large r eaction of long-term interest rates to money announcements in the per iod after October 1979 is consistent with the "policy anticipations hypothesis," which views this reaction as a movement in real intere st rates. Copyright 1987 by Oxford University Press.

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Publisher Info
Article provided by Oxford University Press in its journal Economic Inquiry.

Volume (Year): 25 (1987)
Issue (Month): 3 (July)
Pages: 511-34
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Handle: RePEc:oup:ecinqu:v:25:y:1987:i:3:p:511-34

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  1. Michael J. Fleming & Eli M. Remolona, 1999. "The term structure of announcement effects," Staff Reports 76, Federal Reserve Bank of New York. [Downloadable!]
    Other versions:
  2. Marie Brière, 2006. "Market Reactions to Central Bank Communication Policies : Reading Interest Rate Options Smiles," Working Papers CEB 06-009.RS, Université Libre de Bruxelles, Solvay Brussels School of Economics and Management, Centre Emile Bernheim (CEB). [Downloadable!]
  3. Antulio N. Bomfim & Vincent R. Reinhart, 2000. "Making news: financial market effects of Federal Reserve disclosure practices," Finance and Economics Discussion Series 2000-14, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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